Selected information concerning the operation of Kern Company for the year ended December 31, 2017, is available

Question:

Selected information concerning the operation of Kern Company for the year ended December 31, 2017, is available as follows:

Units produced                                                         10,000
Units sold                                                                   9,000
Direct materials used                                             $40,000
Direct labor incurred                                               20,000
Fixed factory overhead                                            25,000
Variable factory overhead                                        12,000
Fixed selling and administrative expenses               30,000
Variable selling and administrative expenses            4,500
Finished goods inventory, January 1, 2017                None

No work-in-process inventories existed at the beginning or end of 2017.

Required:
  1. What would be Kern’s finished goods inventory cost under the variable (direct) costing method at December 31, 2017?
  2. Which costing method—absorption or variable costing—would show a higher operating income for 2017, and by what amount?

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Financial Reporting and Analysis

ISBN: 978-1259722653

7th edition

Authors: Lawrence Revsine, Daniel Collins, Bruce Johnson, Fred Mittelstaedt, Leonard Soffer

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